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Profit Center Accounting

Course Objectives

¾ Understand the functions in Profit Center


Accounting.
¾ Explain Profitability management in SAP.
¾ Understand and maintain CO-PCA master data.
¾ Identify the source of actual values.
¾ Execute planning.
¾ Use the CO-PCA information system.
Table of contents

Overview

Profitability Management

Master Data

Transfer Prices

Planning

Actual Data

Information System
PCA Overview

¾ Profit center accounting, in conjunction with transfer pricing,


enables:-
9 Structuring of the A Group according to Strategic Business Units
(SBUs), leading to:Full Income Statements according to lines of
business (Product Groups rolled up to SBU/Sectors)
9 Selected reporting of Balance Sheet items by Product Group/SBU and
Sector (e.g. Payables/Receivables, Fixed Assets. Inventories).
9 The ability to reflect material movements between SBUs at
commercial prices rather than cost
Terms used in Profitability Management

¾ Accounting Methods
9 Period Accounting
9 Cost-of-Sales Accounting

¾ Values
9 Gross Sales
9 Net Sales
9 Variances

¾ Ratios
9 Return on Investment
9 Margins
9 Economic Profit
9 Cash Flow
9 Contribution Margin
Profitability Management
Aspects of Profitability Management
PCA
PCA PA
PA

Profitability Analysis
Responsibility Accounting By Market segment
(Company oriented) (Market oriented)
Profitability
Segments
Revenue 2000 Revenue 2000
External Market
Salaries 468 Discounts 100

Materials 230 COGS 230

Profit Contr. Margin 1440

Profit Centers Advertising 250

Ethylene Pharma Power Telecom


Typical Questions in Profit Center Acctng.

Contribution of
What is the operating profit for a profit center?
organizational
unit

Return What asset value is attributed to


on A profit center?
capital

Cost Which responsibility areas


management
Exceeded their plan for last month?

Management What goods and services are exchanged within


of internal
The corporation?
sales & services
Responsibility Accounting

¾ EC-PCA lets you calculate internal operating results for profit centers. A profit
center represents an organizational subunit that operates independently on the
market and bears responsibility for its own costs and revenues. You organize
your organization into profit centers by assigning the master data of each profit-
relevant objects (materials, cost centers, orders, projects, sales orders, assets
and cost objects) to a profit center.
¾ All the business transactions in the R/3 System which are relevant for cost and
profits are updated in the profit centers at the same time they are processed in
the original module, and organized according to cost and revenue elements.
This transforms all the flows of goods and services within the company into
exchanges of goods and services between profit centers. This profit center
structure applies for both actual postings and profit center plan data.
¾ It is also possible to treat a profit center as an investment center. In addition to
the flows of goods and services, you can transfer selected balance sheet line
items (fixed assets, payables and receivables, material stocks, and work in
process) to profit centers on a periodic basis. This makes it possible to calculate
such key figures as profit on sales, return on investments and cash flow.
Valuation Views

A
Group
Legal Profit Center

Group
Company 1 Company 2 Company 3
A Ltd A1 Ltd A2 Ltd

Profit Center 1

Profit Center 2

¾ You use valuation views to represent different ways of viewing business


transactions in a company.
9 Legal view (Individual enterprise) – For transactions between company codes.
9 Group view – For a consolidated view of the corporation.
9 Profit center view – For business transactions between profit centers.
Parallel Currencies in Profit Center Acctn.

EC-
Profit Center Accounting
PCA

Company Special
Transaction
Code EC PCA
Currency
Currency Currency

-
Master Data
Organizational Units & Master Data
A Grp Operating
Operating Concern Concern (9100)

A Grp Controlling
Controlling Area Area (9100)

Profit Centers

Telec Inform
Ethylene ommu ation Corporate
Pharma Polyolefins Power
Propylene nicati techn common
on ology

A Ltd A1 Ltd HQ
Company Codes 9100 9200 1000

Gen Sales and


Cost Centers Purchasing
Services Marketing
R&T
13… 16…
14… 15…

Other Cost Objects Orders Cost Objects


Master Data in Profit Center Accounting

¾ Profit Centers

¾ Profit Center Groups

¾ Accounts P&L, Balance Sheet Items

¾ Statistical key figures


Master Data - Profit Center (1)

Organizational unit in Accounting that reflects a


management-oriented structure of the organization
for the purpose of internal control. Profit Center groups
Profit
are collections of Profit centers with similar characteristics.
Center In the case of A Grp this structure is by Product Group.
Master Data – Profit Center (2)

™ Basic data

™ Validity period

™ Company Code Assignment

™ Address / Communications Data


Master Data – Dummy Profit Center

™ Basic data

™ Indicators: Dummy Profit center

™ Address / Communications Data


Master Data Groups

Profit center
Chemicals

Ethylene Propylene Benzene


Chart of Accounts

A Grp Chart of Accounts - YCCA

Financial Accounting Controlling


1 Assets
2 Liabilities
3 Equity
4 Expense Accounts 4 Primary Cost elements
8 Revenue Accounts 8 Revenue elements
9 Secondary Cost elements
Profit Center Assignments

Profitability
Segment

Sales order
Cost center

Profit
Center Asset

Internal order
Production order

Material
Monitoring Assignments

Not
Check Assignments for: assigned
; Materials
; Cost Centers
; Orders Objects per
profit center
Profit
Center
Profit centers
without
cost centers

Material fast
assignment
Transfer Price
Definition of a Transfer Price

¾ A transfer price is a price used to valuate the transfer of


goods and services between independent organizational
units.
Enterprise Controlling
¾ Legal View – that of independent legal companies
¾ Group View – that of the organization as a whole
¾ Profit center view - that of the decentralized responsibility areas
Transfer Prices in SAP

Controlling area (Corporate Group)


CO

Transfer price from the group viewpoint = group production costs


Transfer price from the profit center viewpoint = management price
Transfer price from the legal viewpoint = sales and purchase price
Transfer Pricing

Company code 9100 A Ltd Company code 9200 A1 Ltd Company code 9300 A3 Ltd
PrCtr1 PrCtr2 PrCtr2 PrCtr3
CCtr 10 CCtr 20
L 80 L 120 PrCtr3
100
+5 G 80 G 100
P 85 85 P 120
L 70 L 80 L 120 220 L 220
L 70 L 100
G 70 G 80 G 100 G 100
G 70 G 100 220
P 70 P 120 P 220
P 85
P 70 P 85

Assumed Plan = Actual => No Variances

Ethylene Butene-1 Butene-1 Polyethylene Polyethylene


Planning
Profit Center Planning Objectives

¾ Plan Integration

¾ Planning Methods

¾ Plan Data Transfer


Plan Integration

MS Excel

Profit Center Plan


Sales 100,000
Discounts 5,000
Cost of Sales 50,000
Marketing Expenses 10,000
Admin. Expenses 15,000
Number of Sales Orders 1,000
….

Internal Cost
Production
Order
Order Center
Planning methods in PCA

Plan data transfer Excel-Upload Manual entry


Copy existing data

New Plan

Plan
Allocations

Final Plan
Plan Data Transfer

Plan Profit Center


Cost Center
On-line Plan Data Transfer Revenue 200,000
AND/OR Marketing 90,000
Internal / Subsequent Postings Admin 80,000
CO Production
….
Order
Actual Data
Actual Values Overview
¾ Flow of Actual values in Profit Center Accounting
9 Overview
9 Flow from Profit and Loss accounts
• Flow from materials management
• Flow from sales and distribution
9 Flow from Balance Sheet items – Period end closing
• Flow from Asset Management
• Transfer of Material Stock
• Transfer of Work In Process
• Flow from Accounts payable and receivable
9 Flow from controlling – Period end closing
• Flow from Overhead Cost Management
• Profit Center Document Entry
• Assessment & Distribution
Actual Values Overview

¾ Flow of Actual Values in Profit Center Accounting


9 Overview
Overview of Value Flow in PCA
EC-
EC-
Profit Center Accounting PCA
V
A
L
U
E
E Primary Costs CO-
FI CO-
F OM PA
L
O
W
CO-
PC

Goods
Procurement Production Movement Sales/Billing

MM PP MM SD
Actual Values Overview

¾ Flow of Actual Values in Profit Center Accounting


9 Flow from Profit and Loss accounts
• Flow from materials management
• Flow from sales and distribution
Determination of Profit Centers in P&L

Source Transaction Profit


center

Billing Document Material/Plant of Sales Order


Substitution

Invoice Receipt Material/Plant


of Purchase Order

Goods Movement Material/Plant

Direct Posting from FI Indirect /Manual Assignment

Other P&L Accounts Customized Automatic


Account Assignment
Flow from materials management (1)
Material Expense
400000 EC-PCA
500

Material Expense
FI 400000
FI
500
CO-PC
Raw Materials
119400 Material Expense 500
500
Flow from materials management (2)
Production Output
M. Expense
462001 EC-PCA
450 500

Finished Products
FI 119430
FI
450
CO-PC
Production Output
462001
Production Output
- 450
450
Flow from sales and distribution (1)

Inventory
EC-PCA
- Finished Product (FG)
119430
Stock
6,028.50-

Cost of Goods Sold


462002 Change Stock FI
FI
6,028.50
Flow from sales and distribution (2)
Sales
EC-
810000 PCA
10,000

FI Receivables

10,000

Sales
810000
10,000
Actual Values Overview

¾ Flow of Actual Values in Profit Center Accounting


9 Flow from Balance Sheet items – Period end closing
• Flow from Asset Management
• Transfer of Material Stock
• Transfer of Work In Process
• Flow from Accounts payable and receivable
Determination of Profit Center for B/Sheet

¾ The system determines the profit center to which balance


sheet accounts are assigned as follows :
9 Receivables are divided according to the corresponding revenue line
items and assigned to the profit centers. Payables are posted to the
profit center of the material ordered for purchases orders to stock,
and to that of the account assignment for purchase orders to account
assignment objects.
9 The assignment of material stocks and assets is based on the
assignment made in the master record of a material.
9 Because postings for down payments do not reference an invoice, it
is not possible to automatically assign the down payment to profit
centers. However, you can assign them manually.
Flow from Asset management

¾ Online Transfer: Assets are assigned to profit centers


indirectly via their assignment to an internal order or cost
center.
Flow of value in AP and AR

¾ Before you can transfer payables and receivables, you first


need to calculate the payables and receivables to be split
in Financial Accounting. In this step, the payables and
receivables are broken down according to profit center based
on sales order line item assignments.
¾ Within PCA you can transfer the data to Profit Center
Accounting. Select the desired company codes and choose
the periods you want to transfer. The payables and
receivables are posted to Profit Center Accounting in the
reconciliation accounts in the general ledger. No
Financial Accounting documents are created in the process.
¾ If you choose line items, the system creates a line item for
each customer and vendor in Profit Center Accounting.
Actual Values Overview

¾ Flow of Actual Values in Profit Center Accounting

9 Flow from controlling – Period end closing


• Flow from Overhead Cost Management
• Profit Center Document Entry
• Assessment & Distribution
Transfer from Controlling (1)

¾ All primary postings to account assignment objects in


Controlling are posted to profit centers using the same cost
element.
¾ For allocations in cost accounting (distribution, assessment,
cost allocation, transfers, order settlement, calculation of
overhead), the following records are updated in Profit Center
Accounting:
9 The profit center of the crediting account assignment object is
“credited” using the same cost element, and the profit center of the
object to be debited is used as the partner profit center.
9 In addition, the profit center of the “receiver” is debited using the
same cost element, and the profit center of the sender is used as the
partner profit center.
Transfer from Controlling (2)

¾ All the secondary transfers between CO objects are selected


and represented in the assigned profit centers.
¾ You can represent the data in Profit Center Accounting by
reflecting the original document directly.
¾ The exchange of services between profit centers is
represented as internal cost allocations in CO. If elimination
of internal business volume is active, as in A Group, Profit
Center Accounting only reflects those services which are
provided by one profit center for another one or between
different controlling object type
(e.g. cost center and internal order)
Assessment

¾ In case you cannot assign the final cost centers or materials to one profit
center, you can collect the data in an allocation Profit center and then
assess it in Profit Center Accounting.
¾ We only assess postings to P&L accounts since for allocation of
Balance Sheet accounts we use distribution.
¾ When you define assessment (XXGA1A - Assess Other PC to Product
PCs), you collect all the sender-receiver relationships in segments. You
then store these segments in different cycles, which are stored with a time
reference.

¾ Note that for technical reasons, a cycle is always defined for one
company code. You can create more than one cycle for a company code
if allocation or performance aspects make this necessary. The cycles will
be processed in sequence.
Information System
Information System Overview

Profit
Center
Report

List-
Interactive oriented
Reporting Reports

Line Item
Reports
Report Output Types
; Variable output areas
Interactive Reporting ; Navigation tree / drag & drop
;Cumulative display functionality

; Interface Report-to-Report
List – Oriented Reports ; Printing options
; Integration with MS Office